Here's Why Investors Should Retain Dave & Buster's (PLAY) Stock
Dave & Buster's Entertainment, Inc. PLAY is likely to benefit from its menu innovation, digital initiatives and store expansions. Also, the emphasis on remodels with new entertainment options bodes well. However, high operating expenses are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Growth Catalysts
Menu Innovation: The company focuses on simplifying its offerings, improving quality, investing in technology (to accelerate the speed of service) and optimizing its labor model to boost the food and beverage business.
During the fiscal second quarter, the company initiated testing of a new Dave & Buster's menu (of the future in a new hospitality-focused service model) and reported solid feedback concerning the same. During the testing period, the company reported a low single-digit sales increase, a 170 basis point improvement in food cost of sales, improved labor costs (on account of operational efficiency) and improved speed of service. Backed by the strong results, the company is optimistic and anticipates launching the new menu and F&B strategy system-wide by September 2023.
Digitization: Dave & Buster's digital initiatives are likely to drive growth. The company believes it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives and deploying better technology.
During the second quarter of fiscal 2023, the company emphasized the optimization of the service model and updating its store IT infrastructure. The initiatives pave a path for improved data and analytics, better guest engagement and improved guest satisfaction. The company intends to leverage its growing loyalty database and invest in other mobile applications to build customer connections and drive frequent customer visitation.
Expansion Efforts: Dave & Buster's continues to pursue a disciplined new store-growth strategy in both new and existing markets, given the broad appeal of its brand. During the second quarter of fiscal 2023, the company opened two new Dave & Buster's stores in Lubbock, TX and Queen Creek, AZ and one new Main Event store in Greenville, SC. Subsequent to quarter-end, the company opened one new Dave & Buster's store in Des Moines, IA and one new Main Event store in Fayetteville, NC. Following the openings, the company reported solid performances in regard to the same. In fiscal 2023, the company intends to open 16 new stores, including 11 Dave & Buster's and 5 Main Event locations.
Sales Boosting Initiatives: The company emphasizes updating the layout and appearance of its D&B stores to boost foot traffic and overall productivity. It also uses technology to support guest engagement and introduces fresh entertainment options to attract customers for walk-in and special event business. To this end, the company has initiated 12 test remodels and reported strong feedback. The company stated testing of eight remodels (for the remainder of 2023) and three remodels (for 2024) in the pipeline. The company intends to roll out the remodel program to the remaining D&B locations in 2024 and beyond, following the testing and financial observations.
Concerns
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In the past three months, Dave & Buster's shares have declined 14% compared with the industry’s 7.2% fall. The downside was primarily due to a fall in walk-in transaction counts and softness in the consumer spending environment.
The company has been bearing the brunt of high expenses for some time. During the fiscal second quarter, other store operating expenses were $169.1 million in the second quarter of 2023 compared with $142.5 million reported in the prior year. The increase is primarily due to higher occupancy costs, utilities, maintenance, security, cleaning services and marketing costs. Also, the additional store operating hours related to our Main Event stores and the impact of Dave & Buster’s new store openings added to the downside. Moving ahead, the company remains cautious of the uncertain macroeconomic environment.
Zacks Rank & Key Picks
Dave & Buster's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Retail-Wholesale sector include:
Kura Sushi USA, Inc. KRUS sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 139.7% on average. Shares of KRUS have increased by 5.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for KRUS’s 2023 sales and EPS indicates 33.4% and 300% growth, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. BJRI sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have declined 1.6% in the past year.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates a 5.6% and a 447.1% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. ARCO currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 38.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.
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Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
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